Crypto trading: 6 Questions to Ask Before selling Cryptocurrencies
Did you buy cryptocurrencies a few years ago when all your peers were doing so? We don't judge you for that! Cryptocurrency is a fantastic industry that can result in nice profits. Hopefully, it performed great for you and thus, you decided to keep your cryptos.
However, what’s the right moment to sell your cryptocurrencies? Should you even sell your cryptocurrency at all? This article is for you - Ask these six questions before you sell your cryptocurrencies.
This list will help you make smarter decisions using in your day to day trading activities. Sometimes, you might find out it’s smarter to hold on for longer to a particular asset. In other words, we want to eliminate emotional trading or the ever-feared fear of missing out (FOMO). Let’s get rational and lock in profits!
Hold on to a stock if the fundamental buying reason did not change.
Do not sell worse-performing cryptocurrencies, rebalance your portfolio instead.
Focus on cutting losses while maximizing profits.
Selling cryptocurrencies is a weighted decision influenced by many factors. It’s more than just “selling or not selling”.
#1. Did You Lose More than 15% of Your Investment?
Many crypto investors suggest that you should sell your cryptocurrencies when their value falls by 15% or more. This advice may be true for some but at the same time, many may not agree to it.
In the end, it finally depends on the risk appetite of the investor. Some investors prefer to have a higher risk margin. Furthermore, it sometimes makes more sense to give some extra breathing space to your trade. Selling trades too quickly might result in missing out on profits due to the higher volatility which is natural to crypto trading.
However, there is an important decision to make before you invest in any particular cryptocurrency. The first decision that you should make is how much you want your crypto investments to grow. The second decision is how much you are willing to lose on your cryptocurrency investment.
Many crypto investors have a big misconception. They decide to wait for the price to return to the level at which they bought it. Do you believe this to be a good idea? It may not be.
Your returns will erode by the point at which your crypto investments touch the breakeven point. We understand that temptation does get the better of us in these circumstances. Yet, you must focus on cutting your losses.
#2. Did Your Motive Change Why You Bought Crypto?
There are various reasons why you buy a particular cryptocurrency, to name a few:
A low entry price for a particular asset
Successful use of innovative or groundbreaking technology
Best product on the market among competitors
We are sure you must have your reasons that may or may not be the ones that we listed here. Are you a value investor? Then we are sure that a drop in price isn't a major factor to compel you to sell your cryptocurrencies.
The reason must be more than what meets the eye. The cryptocurrencies that you hold must have backtracked on their claims. Or did your cryptocurrency project made a 360° turn in terms of its characteristics?
Well, crypto companies and the crypto market are in evolution mode all the time. It means that businesses have to adapt to market conditions. But the evolutionary change of the company may not be something that makes sense to you.
If the company's change isn't making sense to you, then this may be the right time for you to sell your cryptocurrency. On the other hand, it’s better to hold on to a stock if the fundamental buying reason did not change. For example, you believe the technology is still innovative, why would you sell a cryptocurrency when you still believe in it.
#3. Did the Coin Experience a Setback?
Everyone knows how volatile cryptocurrencies are. Yet, crypto investors are also susceptible to emotional triggers from price changes. It can lead them to get out of their crypto investments too soon.
Before you decide to push the exit button, we suggest you spend some time doing research. Compare your cryptocurrency's price with that of its peers over the same time.
If you put in some time doing research, it will help you gain a better context. Hence, you will understand if the downward slide in the price of your crypto is because of an overreaction to some bad news or genuine company-wide problems.
#4. Rebalancing Instead of Selling
Have you ever thought about rebalancing instead of selling your cryptocurrencies outright? Sometimes it’s better to rebalance to reduce your exposure to bad performing cryptocurrencies. A well-diversified portfolio always has well/worse-performing cryptos.
The thing is that you must rebalance your crypto portfolio regularly. Sell the ones that proved to be winners and buy the cryptocurrencies that didn't do quite well. There’s no strict rule on when to rebalance your portfolio. The rebalancing period varies between a period of two weeks of up to multiple months. Be mindful of the fees you pay when rebalancing your portfolio. Frequent rebalancing might eat up your profits.
So, what's the logic behind this idea? There's an idiom - "Buy low and sell high." Rebalancing your crypto portfolio will help you stick with this thumb rule of investing.
Learn different rebalancing strategies, such as “periodic rebalancing” or “threshold rebalancing”.
When you indulge in crypto portfolio rebalancing, it will help you change your asset allocation. You get the chance to sell some of your well-performing cryptocurrencies to reduce your portfolio’s exposure to this asset to reduce the effects of volatility. Furthermore, you can strengthen your position for worse-performing cryptocurrencies, following the “Buy low and sell high” rule.
When you invest in cryptocurrencies long-term, you will see many short-term dips during this time. During this time, you must resist the urge to sell your crypto assets to cash out before your losses soar.
#5. Do You Need Cash?
We get it - life happens! You must be in the middle of something and hence, you need cash. Are you buying a house or having children? Perhaps, you are planning to change your job.
It is also possible that your savings have dipped. Thus, you need money to replenish them. In these cases, it makes sense to get a crypto backed loan on YouHodler. This way, you can get the cash you need without having to sell your favorite crypto assets.
Sometimes it’s better to wait for the stock to go up again instead of letting emotions take control and panic selling. It rarely happens that stock will go completely north.
It’s always good to take a look at the fundamental aspects of a company to decide if something is seriously wrong or the industry is just experiencing a short-term hit.
#6. Did You Find a Better Investment Opportunity?
In an idealistic scenario, you will always have spare cash to buy any cryptocurrencies that you want. We are again in between of a crypto boom. Hence, there's a pretty good chance that you may have come across an attractive crypto project.
But are we living in an ideal world? Of course Not! Do you truly believe that this new crypto project that you came across has huge upside potential? Ask yourself if it has more potential then the ones that you currently hold.
If your answer to the above question is "Yes," then you should sell the underperforming cryptocurrencies to buy tokens of this new crypto project.
To Sell, or Not to Sell?
We believe that it is really important that you review your losses. This is indeed a great reminder for it. We have found that most people are pretty emotional when it comes to investments. Hence, any losses feel like a psychological hit to them. Of course, there are instances when it doesn't make sense to hold onto a cryptocurrency. Otherwise, your losses will keep ballooning up.
We always suggest to crypto traders to set a bottom limit when it comes to their crypto investments. So, what is this bottom limit? It’s the level at which you should sell your cryptocurrency. Selling cryptocurrencies at the bottom limit will help you get over the emotions that are involved in your decisions. On the other hand, make sure to set a take-profit limit.
It’s crucial to keep tabs on the total losses and profits for your crypto portfolio. But it’s equally important to analyze the market. You’ll understand factors that are causing the downfall in the prices of cryptocurrencies.
If some questions that we described above are true for you, it might be better to sell. However, it’s always painful to take a loss. It’s a tough consideration and hopefully, the above questions help you to make a better decision.